Global Shortages Creating Massive Problems
The coronavirus pandemic has caused some massive changes and disruptions throughout the world. Some of those changes and disruptions were probably never expected to be so detrimental or have that much effect on the economy because most people have believed that we would be over the pandemic and have the situation under control by now.
However, that's not the case. Supply chain disruptions and global shortages have been occurring for the past year, and it doesn't look like we'll be back to normal for some time. One of those shortages is in semiconductors, and it is creating a strain on many industries, like the automotive and technology industries.
Automotive Industry Continues to Feel the Strain
Earlier last week, General Motors announced that its four plants in the U.S., three in Mexico, and one in Canada will shut for up to two weeks because of the semiconductor chip shortage.
General Motors isn’t the only company making adjustments to its business. Ford and Toyota have cut their output in August. The chip shortage has been increasing car prices so significantly that it has people considering buying secondhand when it comes to buying a car.
New cars have dozens of microchips throughout the vehicles, so you can see why a chip shortage could significantly affect the production of new vehicles and have a detrimental effect on a company’s financials if this shortage continues.
Last year, when the COVID-19 pandemic was at one of its peaks, most automakers canceled orders with chipmakers because they were unsure when supply and the world would get back to normal again. Of course, this decision worried automakers as it could cause a massive decrease in sales, especially if factories were shut or not at full capacity in a short period of time. And unfortunately, factories that were making semiconductors have been unable to go back to work in full capacity because of COVID-19 infections.
However, when more and more companies began to open back up earlier this year, the demand was steadily increasing and automakers were — and still are — having trouble meeting those demands on top of having to compete with technology companies for the supply since they also need to meet consumer demands and not miss out on sales and financial goals.
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Semiconductor Manufacturing Suppliers Are Struggling in Malaysia
Over the years, Malaysia has emerged as one of the major centers for chip testing and packaging — Infineon Technologies AG, NXP Semiconductors NV, and STMicroelectronics NV are some of the suppliers that have operating plants in Malaysia.
COVID-19 infections continue to soar in the country and it's been difficult trying to keep a positive outlook when it comes getting back to semiconductor production back on track because of these increasing infections. The country is reporting a seven-day average of over 20,000 daily infections, a big increase from late June’s 5,000 average daily infections.
Coronavirus infections have increased significantly in Malaysia, and because of that, semiconductor manufacturers won’t be able to operate at 100% until more than 80% of their workers are fully vaccinated. If more than three workers are infected with COVID-19, factories have to shut down completely for as long as two weeks for sanitation, which means more time lost and fewer semiconductors produced. It's been a struggle and a strange balancing act of trying to get workers back to work while also being responsible when it comes to reducing the spread of the virus.
Auto Sales Experiencing Disappointing Sales
Last month, Ford Motor's U.S. sales of new vehicles decreased about 33% from the previous year, and semiconductor chips could be the biggest culprit in this decline for Ford and the rest of the automotive industry.
According to auto data from Motor Intelligence, for August auto sales, Ford had an adjusted selling rate of 13.09 million vehicles — that’s down from this year’s peak of 18.5 million in April and is the worst pace since June 2020.
August tends to be a higher auto sales month of the year for automakers, especially with the Labor Day holiday weekend and sales incentives to bring customers into dealerships. However, this year that was not the case, especially with vehicle inventory levels at record lows and the skyrocketing pricing for new cars and trucks.
Obviously, it’s been a tough year for the automotive industry. Some automakers were hoping that the worst was behind them, but it appears this might be the new normal for some time. Volkswagen’s CEO, Herbert Diess, had this to say about the shortage and future business in an interview on Labor Day:
Probably we will remain in shortages for the next months or even years because semiconductors are in high demand. The internet of things is growing and the capacity ramp-up will take time. It will be probably a bottleneck for the next months and years to come.
While I think a lot of people want to believe the pandemic is behind us, I think its effects on many industries and markets are just now coming to light, and it's important to know what is going on and how these companies and industries plan to move forward and create a business model that could alleviate the pains that they're currently struggling with for the future if some type of global pandemic happens again.
Until next time,